Dec 052012
Text messaging and SMS made good profits for mobile phone companies

When the mobile phone arrived we thought that text, particularly those clumsy pagers people used, would be dead.

Little did we know that an overlooked part of the newer digital cellphone technology would see short messaging become a key part of the phone system and a major income generator for telephone companies.

Short Messaging Services – or SMS – was an add on to the digital Global System for Mobile communications (GSM) standard which became the second generation (2G) of mobile phones.

While intended as a control feature on the phone networks, SMS took off as a popular medium in the mid 1990s and soon became a major profit centre for mobile carriers.

The Twentieth anniversary of the first SMS being sent passed last week and the BBC has a great interview, conducted by text message, with Matti Makkonen who came up with idea.

One of the notable things in the interview is Matti’s humility – he doesn’t like being called the inventor or founder of text messaging as he explains,

I did not consider SMS as personal achievement but as result of joint effort to collect ideas and write the specifications of the services based on them.

We can only imagine what would happen if the idea of SMS messaging was invented today, there’d be an unseemly struggle over patents while hot young Silicon Valley entrepreneurs would pitch venture capital firms with plans for niche services that will make a billion dollars when sold to Yahoo! or HP.

As it was, SMS services were insanely profitable for the telcos. In the early days, text messages were being charged at over a dollar each – for a service that cost the carrier almost nothing.

Over time those handsome profits have been eroded as SMS became bundled into all-you-can-eat packages and then the internet introduced new mediums to send short messages.

While SMS isn’t going away while mobile phones are an important part of our business and personal lives; the service isn’t going to be as critical, or as profitable as it was over the last twenty years.

Short Messaging Services are a great example of how individual technologies rise, evolve and fade with time. They are also a good lesson on how quickly a premium, highly profitable service can become commodified.

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